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CEP discussion paper
Is Seniority-Based Pay Used as a Motivation Device? Evidence from Plant Level Data
Alberto Bayo-Moriones, Jose E. Galdon-Sanchez and Maia Güell August 2004
Paper No' CEPDP0646:
Full Paper (pdf)

JEL Classification: M52; M12; J30

Tags: human resource management practices; incentives; monitoring

In this paper we use data from industrial plants to investigate if seniority-based pay is used as a motivational device for production workers. Alternatively, seniority-based pay could simply be a wage setting rule not necessarily related to the provision of incentives. Unlike previous papers, we use a direct measure of seniority-based pay as well as measures of monitoring devices and piece-rates. We find that firms that offer seniority-based pay are less likely to offer explicit incentives. They are also less likely to invest in monitoring devices. We also find that firms that offer seniority-based pay are more likely to engage in other human resource management policies that result in long employment relationships. Overall these results suggest that seniority-based pay is indeed used as a motivation device.